Know the Difference: IRA Transfer vs. Rollover

In order to live comfortably during retirement, you’ll need to start saving as soon as you can. Opening an IRA account is widely known as one of the most reliable ways to invest in your future.

There are two major ways to fund your IRA: transfers and rollovers.

Not everyone understands the difference between the two, though. Not sure where to start? Don’t worry, we’ve got you covered.

Let’s take a look at everything you need to know about IRA transfer vs rollover.

An IRA Transfer

When you move money from one IRA account to another, it’s known as a transfer. The same concept applies as when you move money between two separate checking accounts at different banks.

When you move funds from an IRA at one firm to an IRA account managed by another firm, the transfer isn’t reported to the IRS and no taxes are incurred. This is due to the fact that the money in the original IRA account never actually reached the account owner.

If the owner were to instead withdraw the funds and then reinvest them into another account, they would incur taxes upon withdrawal. There may even be tax penalties depending on why the money was taken out of the account.

An IRA Rollover

A rollover occurs when money is either moved from an IRA account to a retirement plan or from a retirement plan to an IRA account. When the money never reaches the account holder, it’s known as a direct rollover.

This type of rollover differs from a conventional transfer because it involves two different types of plans.

Although direct rollovers are reported to the IRS, they generally aren’t taxable since the money was never made payable to the account holder.

During an indirect rollover, the money is distributed to the account holder. But, it isn’t taxed if the money is reinvested in an IRA account within 60 days. This will allow the account funds to remain tax-deferred.

How Should I Prepare For One?

Above all else, it’s important to understand that a rollover will likely take a couple of weeks to complete. This is crucial for those handling indirect rollovers to keep in mind, as penalties occur after 60 days from when the funds are distributed to the account holder.

Additionally, most institutions will require you to fill out paperwork in order to begin the process. Some providers may have specific requirements regarding rollovers that may become a factor when reallocating your funds.

Knowing The Difference Between IRA Transfer Vs Rollover Can Seem Difficult

But it doesn’t have to be.

With the above information about an IRA transfer vs rollover in mind, you’ll be well on your way toward putting money away toward a peaceful retirement.

Want to learn more about how we can help? Feel free to get in touch with us today to see what we can do.

What is a Self-Directed IRA?

Whether it’s a Traditional IRA or a Roth IRA, a Self-Directed IRA (SDIRA), gives you all the tax advantages of an IRA with the freedom and flexibility of a wider array of investment instruments. The opportunity to take control of your financial future with greater asset diversification is one reason to invest in a self-directed IRA.

  • Regular IRAs allow investments in stocks, bonds, mutual funds, ETFs, and CDs. 
  • With a self-directed IRA, your investment options increase to include real estate, tax lien certificates, private market securities, promissory notes, and other investment opportunities. 
  • Building wealth with the tax advantages of an IRA while diversifying your retirement investment fund allows you to seek higher returns than a regular IRA. 
  • Higher yields and less volatility are another advantage of an SDIRA.

There are restrictions on what is permissible within IRS guidelines for an SDIRA. 

  • For example, you cannot borrow money from your SDIRA, sell the property to it, or enter into deals with relatives for it. 
  • You should also know that your IRA custodian cannot provide investment advice. 
  • Your IRA custodian can and should advise you of all prohibited transactions for your SDIRA.

The annual contribution limits are the same as a regular IRA: for those below the age of 50, $6000, and those older than 50, $7000. With the current and future problems with pensions, health care, Social Security, and other government programs, it is more important than ever to have a solid foundation for your financial future.

Quest Trust Company IRA Specialists can answer your questions about an SDIRA. Consider the benefits of an SDIRA with Quest Trust Company as your custodian: 

  • While most companies have only one option for your SDIRA, Quest Trust Company offers seven. 
  • Quest, there is no minimum cash balance. 
  • Transaction processing can exceed over two weeks with some companies; Quest processes transactions within 24-48 hours.

Quest offers the following for FREE (Other companies charge a fee for all of the following items):

  1. Expedited Services
  2. Processing Incoming Wires
  3. Processing Incoming Checks
  4. Roth Conversions
  5. Re-Characterizations
  6. Change Account Type Fee
  7. Certified Mail Fee
  8. Paper Statement Fee
  9. Distribution Processing
  10. Required Minimum Cash Balance (No minimum cash balance)

Contact a Quest IRA Specialist today! And discover how a self-directed IRA will fit into your retirement investment strategy. At Quest Trust Company, we help you take control of your retirement. 

How to Maximize the Growth of Your Investment IRA

When starting to plan for retirement, it’s important to start looking into tools that will help make the financial transition into retirement go as smooth as possible. Most people who are looking into ways that they can simplify the retirement process usually turn to an Individual Retirement Account. These are accounts that can have annual contributions, which can be tax deductible. Investments are only taxed when they are withdrawn from the account, but they are taxed in the same way that a regular income is taxed. There are certainly ways that people can get more out of an IRA account, which we will explain below.

The Earlier, The Better

IRAs grow when money is compounded. Investments can usually create more returns by reinvesting. If you give your money more of a chance to go through the cycle of compounding, the better chances of success for your IRA will be. This will allow your money to go through the compounding cycle without the impact of taxes taking over. Read more about this topic in our post How to Save for Retirement in Your 20s, 40s, and 60s.

Don’t Wait Until Tax Day to Contribute

\Waiting until tax day is not a good idea. A lot of people who have IRAs only make contributions to their accounts when their taxes are done. Doing this denies the chance for your IRA to grow as much as possible over the course of the year. A contribution at the beginning of the year gives the IRA a longer time to compound. Instead of making one big contribution, experts recommend putting a small portion of your money into your account throughout the year because it will benefit you most in the future

Specialize by Using your IRA

It’s crucial to set investment goals. Having investment goals will help determine what goes into your account. Experts recommend funds that are trade exchanged because they have low expenses and the other fees aren’t as much as other accounts have proven to be if you’re looking into basic retirement plans. More advanced retirement plans have distribution across many different accounts based on the taxation, also known as an asset location. Bonds that earn an income should be invested into IRAs and other financial gains and assets should be put into accounts that can be taxed.

Not every strategy for stocks is something that can be considered beneficial. It doesn’t just depend on how much you get taxed from each account, but you also have to consider what your personal situation is at the time of investment and how much you are anticipating getting back from your investment. Assets that are considered inefficient are in favor of getting put into an IRA, but other funds, like index funds, should be put into an account that can be taxable. Lower-return funds don’t have a specific end location; they can go anywhere.

IRAs can also be used for way more than what you would expect. People often find themselves investing in many different specialized funds, such as foreign equities, real estate, or investments in stocks that are considered to be small-cap stocks. Speak to your financial advisor about the best course of action for you.

Terms Every Investor Needs to Know for Self-Directed IRAs

Just like any profession, the world of finance has its own special vocabulary. Those not familiar with the terms may find paperwork confusing or difficult to understand. If you’re setting up a self-directed IRA for the first time, you will want to familiarize yourself with the below terms as you will be seeing them a lot around here!

Administrator The person or company who performs all actions related to running the plan. It could be an employer, a third-party hired to oversee the plan, or a corporate executive.

AGI (Adjusted Gross Income) The total sum of income you took in over the year minus the deductions and other qualified adjustments that reduce the total amount. Income can include earnings from a job, self-employment, taxable interest and dividends, capital gains, rental income, and any other income not exempted from income tax. The deductions for determining AGI may include student loan interest and tuition payments, IRA contributions, and teacher expenses for the classroom. The Tax Bill has changed many deductions for the 2018 year, so it’s best to brush up on what you will qualify for this tax filing year and what may be disappearing for next year.

Beneficiary Someone who receives an inherited IRA designated by the plan owner. They can include spouses, children, or anyone else related or unrelated to the plan owner, as long as they were properly listed on the paperwork.

Contribution Funds given to the IRA or 401(k). There are annual contribution limits for both IRAs and 401(k)s.

Custodian Person who handles all of the fund transfers and/or transactions associated with the plan. They must be an approved member by the IRS.

Disqualified Person Certain transactions cannot be performed within an IRA to benefit a disqualified person. An example would be purchasing a relative’s home with your IRA funds. Disqualified people may include a spouse, parents, children, fiduciaries, corporations, and more.

Distribution Withdrawals made from the IRA. There are regulations determining when you are allowed to make penalty free distributions, and some IRA plans require minimum distributions once you reach a certain age, called RMDs.

Earnings The total amount of money in your IRA minus the contributions. It’s what the IRA has earned, or how much it’s grown by, over a given period of time.

Fiduciary A person in authority over the management or administration of your IRA, or one who provides professional advice as it relates to your IRA.

Inherited IRA An IRA given to a beneficiary of the account after the account holder has passed away. Inherited IRAs have different rules and regulations than Traditional and Roth IRAs.

In-Kind Contribution These contributions are in the form of assets that have been valued at a fair market price. The value must stay within the contribution limits for the account.

Leveraged Transactions Where the account holder uses borrowed funds for purchases with the IRA. Also known as Debt Financed Transactions.

Permitted Investments Any general investments allowed under your plan. Not all plans allow the same investments, such as Real Estate Investments.

Prohibited Transaction These include unacceptable investments per the plan guidelines, or transactions that benefit a disqualified person.

Qualified Plan Approved by the IRS to allow tax-free or tax-deferred funds for retirement income. These are typical IRA plans.

Rollover Transferring funds from one plan to another, such as from a Traditional IRA to a Roth IRA.

Spousal IRA The IRA of a spouse who generates no income, or who generates an income too low to meet the contribution limits for their IRA. The working spouse can contribute to the Spousal IRA as well as their own, effectively doubling annual retirement investments.

Trustee The person who controls the assets in the IRA.

Unrelated Business Taxable Income (UBTI) Income earned by a tax-exempt organization outside of the exempt business-related activities, minus any qualifying deductions.

Unrelated Debt Financed Income Tax (UDFI) The tax on funds gained from a debt financed transaction that exceed $1,000. For example, if you borrowed $4,000 for an investment, and the investment appreciated to $7,000, you would pay tax on the $3,000 it earned.

FAQs for Small Business IRA Contributions

Although not required for small business owners in most states, small business IRAs are a great way for owners and their employees to save for their futures. There are two major accounts you can set up as a small business owner, each with different set-up requirements, flexible options, and employee participation rules. One is called the Simplified Employee Pension (SEP) IRA, and the other is called the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Here are the most common questions small business owners have with regards to these two account options:


  • What are the contribution limits of a SEP? All contributions to an employee’s plan must come from the employer. Employees cannot contribute to their SEP plans. The maximum contribution an employer can make to the plan is 25% of the employee’s salary, or up to $55,000 if 25% exceeds this amount. The same goes for your own account as the business owner.
  • Do I have to contribute the same percentage for each employee? Yes. Many plans require you to choose a percentage you would like to contribute for each employee. If you choose 3%, everybody gets a 3% contribution no matter how much they earn. This can lead to different total amounts. Remember, whatever percentage you choose also applies to your own account.
  • How do the tax deductions work? The contributions your business makes to each account don’t count toward the individual employees’ gross incomes. So, they won’t have to claim it as taxable income when filing. Contributions are tax deductible for the employer, including their own personal plan. The funds will grow tax deferred and the employees will pay income taxes on any distributions.


  • What are the contribution limits of a SIMPLE IRA? An employer can choose to contribute 2% to all employees who earn at least $5,000, and up to $275,000 (2018) in income, or employers can offer up to 3% matching for employees who electively take a salary reduction contribution for their plans. In each case, the employee cannot contribute more than $12,500 to their plan per year, or $15,500 if older than 50. If the employer chooses to make 2% contributions, they must give this to every employee regardless of whether or not they make their own contributions to the plan.
  • How does matching work? For employers who choose the matching plan (rather than the flat 2% plan), employees will decide how much of their income they would like to contribute directly into their SIMPLE IRA. The employer then matches up to 3% of their income into the plan. If the employee decides to contribute 2%, the employer will also match the 2%. If the employee decides to contribute 5%, the employer will only have the ability to match up to 3%.

How do the tax deductions work? Just like with SEP IRAs, employers can deduct contributions to a SIMPLE IRAs annually. The employee only pays the taxes on the distributions when they list it as taxable income on their tax returns.

Real Estate IRA Rules

If you haven’t been too fond of how your IRA is doing with stocks or bonds, you’ll want to take a look into putting your IRA funds towards real estate. Any type of real estate can be purchased with an IRA. Although you can invest your IRA towards real estate, there are many rules you have to follow for how you can buy real estate with your IRA and how you can use your real estate. If you violate these rules, you will face serious consequences with your taxes.

Self-Directed IRA

IRS rules do not set a requirement for forcing real estate as an option towards investment, even though the rules of the IRS do allow IRA funds to be used towards a real estate investment. Most companies that offer traditional IRA investments will not allow an IRA owner to make an investment in real estate. This is because there is a burden on administration for the management of real estate investments. If you are in this position and want to invest IRA funds in real estate, you will be put into a position where you have to convert some or all of your traditional IRA funds to a self-directed IRA. A self-directed IRA is a type of IRA that allows you and you alone to make decisions on your investments. These can be created at banks that are non-depository.

Transactions that are prohibited

Based on the rules of the IRS, real estate that is owned by an IRA can only used for investment purposes. Because of this, several restrictions have been placed that change the way you can manage your real estate investment. One of the most important terms when trying to understand the restrictions is “disqualified persons”. This is talking about the person who owns the IRA and the people close to them. Disqualified persons would be advisers and someone in a business who has interest that is greater than 50 percent. Purchase from a person who is considered disqualified is against the IRS rules, and it prevents them from using any real estate that has been purchased with an IRA for self-gain.

Issues with financing

Using cash for your investment will allow a future payment for the property to stay in the IRA, which is tax deferred until distributions are ready to be taken out. However, if you get any sort of mortgage out of it, you will be required to pay taxes. You will won’t have a guarantee that you will get a portion of the mortgage back.

Tax Consequences

Violating the rules of the IRS regarding restricted transactions will allow the IRS to take the funds that you used in your IRAs distribution. You will be required to pay taxes on funds that are from the first year in which the payment has taken place, and you will also be charged interest. Additional penalties could be included, depending on the situation. It is best to follow the rules and always talk to an advisor before moving funds to avoid accidental penalty.

Five People You Can List as Beneficiaries on Your IRA

One of the first and most important pieces of information you will fill out on your IRA paperwork is naming a beneficiary in the event you pass away before the funds have been completely distributed. Since your IRA is not directly linked to your Will, your inheritors need to be clearly defined in both documents, even if you plan on using the same divisional scheme. Not naming a beneficiary for your IRA can lead to disastrous consequences. So, who can you name as a beneficiary? Everyone has different family bonds or none at all, so it’s important to choose an inheritor or inheritors that best fit your needs and wishes. Below are the five types of beneficiaries you can name on your IRA.

  1. If you are married you will probably want to list your spouse as your primary beneficiary, as they can roll the funds into their own IRA account, use the funds to cover funeral costs and debts or use the funds to cover the cost of living without your income. If they roll the funds over into their own IRA, the distributions will be based on their own life expectancy, not yours. They can also name their own beneficiaries at this point for when the time comes to transfer the funds down the line.

If your family is blended and you don’t completely trust that your spouse will exert fairness to your children with the funds after you pass, you can divide your account however you wish between however many parties you wish to ensure everyone receives their fair allotment. If you were ever divorced and don’t want your ex to benefit from your account after your passing, be sure to update your forms to your current spouse, children, or somebody else. After you die, the forms can’t be changed and your ex will legally be entitled to the money.

  1. Children, grandchildren, other. If your spouse passed before you, or you’re currently unmarried, the most popular second option is to pass the funds to children, grandchildren, or another family member or friend. Keep in mind, the inheritor can choose what they will do with the money once it’s in their name. They can open their own inherited IRA to grow the funds tax-deferred until they reach retirement age, or they can just cash out immediately and not take complete advantage of the fund growth.
  2. If you don’t trust an inheritor to make wise decisions with their inheritance, either because of age or personality, you can name a trust as a beneficiary to maintain a bit more control over the funds after you pass. The distributions from your IRA go directly into the trust, and the inheritors you have listed in the trust will only gain access to the money when you want them to. Your written instructions will dictate who gets money, how much they get, and when they get it. Distributions from your IRA will then be calculated by the life expectancy of the oldest person listed in the trust. While this option provides the most amount of control, it also gives less growth potential and may cost more in taxes and fees than an inherited IRA.
  3. If you don’t name a beneficiary, or don’t have any living relatives to name, the money in the account will default to your estate, which may be used to pay off debts first before distributing the leftover money to heirs. Since the funds would be distributed immediately to the estate, the total will be subject to income tax and possibly estate tax as well if your assets are worth more than $5,490,000 (2017). This option also disallows for maximum growth potential, so it can be the least advantageous choice unless the account holder has no other options.
  4. If you have a traditional IRA with tax deferred funds, you may consider giving all or part of your account to a charity. Charities can accept funds without paying income tax, and your family may deduct the donation from your total estate to avoid paying estate tax. If you have a large estate and several accounts to divide between family members, you may consider the counsel of a specialized attorney to ensure you’ve covered all your bases.

Before you choose your beneficiaries, be sure to talk to your financial advisor about the best possible options for you. They will also help you set up contingency plans in case situations change. When it comes to leaving money to your relatives, you can never be too careful.

Tax Deadlines You Should Know for Your IRA

With tax season well under way, you may be wondering how your IRA figures into your filing. There are several key deadlines with respect to IRA accounts that you must consider before beginning your taxes. For the purpose of this article, we will only be focusing on traditional IRAs, Roth IRAs, and inherited IRAs.

  • December 31st. If you were thinking about converting your traditional IRA to a Roth IRA, the transfer must be complete by the end of the year. The end of December also marks when you must take your Required Minimum Distribution (RMD) from your traditional IRA if you are older than 70 ½, or from your inherited IRA no matter how old you are. Roth IRAs don’t necessitate RMDs.

An inherited IRA requires that you take your first RMD by December 31st the year after the year of the original account holder’s death, and then calculate RMDs based on your own life expectancy, or you will default to the five year plan which will distribute all funds by December 31st on the fifth year following death. If the original account holder was already older than 70 ½ at the time of death, you must ensure they took their yearly RMD before the close of that year. If RMDs are forgotten, significant penalties will occur, and you could owe up to 50% of that RMD to the IRS. Remember, any distributions from a traditional IRA count as taxable income and may move you to a higher tax bracket.

  • January 31st. This is the date when you will typically receive your 1099 forms by and will help you file your taxes correctly. You should receive 1099 forms from your place of employment as well as all other sources of income, including your retirement accounts if you recognized a gain in that year.
  • April 17th. This is usually the last day you can make a contribution to your traditional or Roth IRA for it to count in the tax year. The maximum contribution amount for both Traditional and Roth IRAs for 2017 is $5,500, or $6,500 if you’re older than 50.
  • April 18th. Tax day—deadline for filing taxes for individuals, sole proprietors, and many corporations. Not filing taxes can result in penalties for every month you don’t file after this date. If you owe on your taxes, you must also pay by this date. If you cannot pay the full amount, you will also be penalized for every month you don’t pay. Combined, you could end up paying 5% more each month on the amount you still owe. However, there are a few payment plan options allowed by the IRS for qualified individuals.
  • October 16th. If you qualified for a tax filing extension, your taxes will be due by this day. No more extensions will be granted past this date.

The above deadlines may vary state to state or by company, but usually fall within a day or two of the above listed. Be sure to check with your tax advisor about specific dates that apply to you and how to maximize your earnings this year.

IRA Investments: Stocks, Bonds, and Mutual Funds

Choosing which type of investment to place your IRA funds into can be overwhelming, especially with all the different options, rules, and risks out there. Most of the time, you will spread your annual contribution between two or more investments, or “buckets” if you will. This way if one sector does poorly, you lessen your chance of taking a huge hit to your retirement as a whole. The most common forms of IRA investments are stocks, bonds, and mutual funds. These three investment opportunities are explained below.

  1. Stocks.  A stock is a purchased part ownership of a company. You can buy your way into this system by purchasing shares; and depending on how many shares you own and how many shares the company allocates, you will own a certain percentage of that company. If your shares fall under the category of “common stock”, you will have a vote in annual shareholder meetings and be rewarded dividends on company profits. If your stock is “preferred stock”, you won’t get a vote in shareholder meetings, but you will have first priority in dividend distribution and asset liquidation should the company go bankrupt.

Some stocks are riskier than others, and the safer ones tend to be the more expensive stocks. You will be completely at the mercy of the market with this type of investment, so you could gain or lose money in any given year. Even if you lose money, you can wait for an upswing in the market to gain back your losses, but it may take time. The amount of funds you contribute toward stock will depend on your age and your long-term retirement goals. They can be high risk, but they can also be high reward the longer you stick with them. The percentage you contribute to your stock fund will typically decrease as you age since you’ll want more secure and dependable assets in your portfolio the closer you are to retirement.

  1. Bonds. While bonds can be a safer investment than stocks, they can also yield smaller returns. Therefore, they are a low risk, low reward investment. You’ll want to include at least a small percentage of lower risk investments in your portfolio starting out, and increase the safe to risky ratio the closer you get to retirement. There are several types of bonds available, each with their own associated rules, taxation, and risk.

Bonds are basically tools for companies or governments to raise money quickly by issuing promissory notes to people who lend a certain amount of money to them in exchange for payback with interest, but no ownership in the entity. For instance, a company could issue 100 $1,000 bonds to people with a promise of paying them back at face value by a certain date, say two years later. Meanwhile, the company pays a pre-determined amount of interest to each bond holder in increments over those two years. With government bonds, you may have to pay federal and/or state tax on the interest accumulated and the value of the bond may not keep up with inflation. No tax on the interest usually means the interest percentage will be lower. Bonds can also be bought, sold, and traded since their value can fluctuate just like a stock.

  1. Mutual Funds. Mutual funds are most easily described as a bundle of different stocks and investments from different companies, niches, and assets. Rather than investing a large amount into one company’s stocks, you can use the same amount to buy a fraction of, say, ten different company stocks. Some mutual funds will be offered in a certain industry such as technology, while others may offer only large cap or small cap stocks. Because your investment is spread out in a mutual fund, the risk is generally less than with a single stock. In the same way, the reward is also smaller. Mutual funds can be a complicated investment to research and find the right one for you, so you may need the assistance of a broker with these investments.

Saving for retirement through an IRA is a smart decision, but it can be tricky with all of the options, risks, and rewards out there. While the above mentioned vehicles are only a few of the many ways to invest with an IRA, only you and your financial advisor will know which investments are right for you, your portfolio, and your retirement goals.